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Consumers Warned About Risky Internet Retailers

New York Attorney General Spitzer today warned consumers about internet retailers that rely on risky rebate programs and other sales gimmicks.

Spitzer's warning was issued in response to the recent announcement that CyberRebate.com has sought bankruptcy protection, leaving hundreds of thousands of customers with significant losses.

"The internet provides unlimited commercial opportunities, however, the recent spate of 'dot-com' failures should warn consumers about the risks associated with a new and developing medium," Spitzer said. "It is imperative that consumers investigate a company before they do they business with it," he said.

CyberRebate.com, based on Long Island, sold a wide range of consumer goods, including electronics, movies, books, jewelry, toys, gifts, and household items by offering a rebate, ranging from 50 to 100 percent off of the purchase price. This was possible because the company sold goods at prices significantly higher than normal retail prices and conditioned its rebate on a 14-week delivery period. In effect, the company's margin came from customers who forgot or chose not to seek a rebate.

Citing court papers that put the company's total assets at $23.5 million, compared to liabilities in excess of $83 million, Spitzer explained the risk inherent in such dubious business models.

"The lesson is that consumers take on disproportionate risk when buying into a rebate program that requires significant up-front funds and allows an extended period of time for the business to repay its debt," Spitzer said.

Spitzer's office commenced an investigation into CyberRebate more than a year ago. The focus of the probe was based on complaints from consumers who had not received their rebates within the promised time frame. The investigation, which was limited to the company's advertising claims and its rebate payment practices, resulted in a settlement that required the company deliver rebates in a more timely manner and to conspicuously post its terms and conditions of its offers.

Since CyberRebate's bankruptcy announcement, Spitzer's office has begun a separate review of possible wrongdoing by the company.

The Attorney General is also reviewing the effectiveness of current state and federal statutes in protecting consumers against risky business operation such as CyberRebate's.

"For e-commerce to flourish, it is imperative that consumers are confident that basic consumer protections are applied to their transactions," Spitzer said. "There may be a need for stronger laws to ensure that this is the case."